The payments industry is approaching an inflection point with respect to whether the mobile wallet and mobile payments could become a viable every day payment tool. More and more consumers are being introduced to the concept for the first time and many companies are beginning to make their very first mobile-related investments.
Below are the five trends that gained in prominence in 2014:
The emergence of full financial mobility
Financial institutions and payments companies are in the early days of being able to connect with consumers across all parts of their financial life. Technological advancements, such as faster internet speeds, increased computing power and the arrival of smartphones to the masses, have allowed for more aspects of financial services to go mobile. Already consumers in many markets can view account history, send money to friends and deposit paper cheques all from a mobile phone.
The continued increased sophistication of mobile banking apps and the fast consumer uptake of such apps bodes well for mobile payments one day becoming a mainstream payment option. The reality is that mobile banking conditions consumers to use mobile phones for financial transactions, meaning the mobile banking apps of tomorrow could one day encompass all types of payments.
Of course, the mobile phone has the potential to not only be a disruptive force in the way that consumers interact with financial institutions via mobile banking apps, but also in the way that consumers shop and also pay for goods and services in a broader sense. With time and further investment, consumers will likely be able to more readily make in-store payments using these devices.
Payments are becoming more invisible thanks to mobile
The payment transaction is becoming an increasingly invisible part of the purchase. The trend of payment transactions fading away are being driven by two factors. First, many payment providers are discovering that payments are just one component of the overall interaction and in order to remain competitive they will have to offer other ancillary services, including elements that drive consumer-brand loyalty or enhance the consumer experience. Such interactions can be leveraged through mobile technologies.
The second factor driving this rise in more invisible payments is the increased use of mobile devices to execute payments and the need to reduce the steps to purchase. Although transactions made via a mobile device are on the rise, the conversion rates on mobile devices are nevertheless woefully low as compared with purchases made from computers.
The challenge for many consumers is being able to easily enter payment details on devices with such small screens. As a result, companies are eliminating the friction through the use of one-click functionality, which enables consumers to simply enter in log-in details and execute a payment in a single click. Digital wallets, such as Visa’s Checkout or MasterCard’s MasterPass, do just that. Ultimately, digital wallets are about security and convenience for the end-consumer and have become a necessary component of any mobile platform.
Couch commerce among developed market consumers
Tablet devices have previously been dubbed “couch devices” because consumers often reach for them and may in turn make a purchase while lounging on their couch at home. Such tablet-driven mobile commerce purchases are a prominent trend in the world’s most developed markets, which tend to have much higher tablet penetration rates, in general.
The greatest tablet-driven m-commerce per capita spend in 2014 includes the likes of the U.K., the U.S., Australia, the Netherlands and Denmark. In contrast, such spend was negligible in markets like Vietnam, India, the Philippines, Morocco and Colombia. Although smartphones are gaining penetration in emerging markets, the tablet market in many of these countries is relatively small.
U.K. emerges as hotbed for mobile payments
The last year has been a breakout one for mobile payments in the U.K. with the market ranking No. 1 for total m-commerce spend in 2014. Euromonitor estimates on a per capita basis that U.K. consumers will spend US$824 in 2014, with almost 80% coming from purchases made on tablets over mobile phones.
The popularity of such devices and the increased familiarity with buying items online has boosted the remote portion of mobile commerce. In addition, the advent of the click-and-collect concept, which enables consumers to make purchases online and pick up the item at the retailer’s bricks-and-mortar location, has been a boon to the internet retailing category for the high street over the last couple years.
Despite this country’s mobile commerce growth being driven by purchases on tablet devices, the U.K. still ranks high in both remote and proximity payments made via mobile phones. That’s partially because the U.K. has been one of the more popular markets for contactless payments, which work on a single standard to execute tap-and-go payments via a plastic card.
Such systems lay the groundwork for executing those transactions through a mobile device using an NFC chip and in time wearable tech payments. The growth of proximity payments is expected to continue its trajectory in the U.K. with a CAGR of 36 percent over the next five years as more products like the impending EFT-funded mobile wallet called Zapp come to market. In addition, with Transport for London now accepting contactless payments across the tube, rail and bus, these daily transit transactions will likely evolve into mobile-based payments soon.
In-store payments beginning to gain traction in world’s most developed markets
Although the concept of using your mobile phone in store to execute a payment certainly has generated a lot of buzz in recent years, this type of mobile payment remains far less common than remote mobile purchases. In most markets, the percentage of overall mobile commerce executed via a mobile phone that are proximity, or in-store payments, would be in the single digits. Three of the world’s most developed markets had the highest spend of proximity mobile payments on a per capita basis in 2014: Australia (US$22); the U.S. (US$16); and the U.K. (US$12).
The more extensive use of in-store mobile payments in Australia over other markets has occurred thanks to the arrival of smartphones to the masses, coupled with the high usage of its existing contactless payments systems. As a result, banks and companies have been leveraging the contactless system to execute NFC-based mobile payments either through a chip in a phone or sticker placed on the back of the phone.
For example, Commonweath Bank — one of the big four Australian banks —updated its m-banking app in autumn 2013 to enable consumers to make proximity payments by leveraging the smartphone’s NFC chip as part of a product, which has been dubbed Tap & Pay. For those without the proper NFC-enabled phone, consumers also can attach a smart sticker to the back of their smartphone to execute such a mobile purchase. Banks and industry entrants also are leveraging other mobile technologies, such as QR codes and Bluetooth Low Energy, to bring in-store mobile payment products to market.